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BANKING CORPORATIONS MUST INCORPORATE UNDER GENERAL BANKING LAW.

Honorable Frederick C. Martindale, Secretary of State, Lansing, Michigan:

March 27, 1912.

Dear Sir-I am in receipt of your communication of March 19 in which you state that recently articles of association organizing "The Citizens Banking Company, Limited," and drafted under the provisions of Chapter 160 of the Compiled Laws of 1897 (The Partnership Association Limited Act), were presented for record; and that the purposes of organization set up in these articles of association are as follows:

"This association is organized for the following purposes: To own and operate a bank in Wakefield, Gogebic County, Michigan, and to transact a general banking business, the location of said bank and of the transaction in said business being at said Wakefield."

You wish to be advised whether or not you should accept for record articles of association under Chapter 160 of the Compiled Laws of 1897, in which the purposes of organization stated are to own and operate a bank and to transact a general banking business.

Act No. 191 of the Public Acts of 1877 (Chapter 160, Section 6079 et seq. Compiled Laws of 1897), is entitled:

"An Act authorizing the formation of partnership associations in which the capital subscribed shall alone be responsible for the debts of the association, except under certain circumstances."

Section 1 of this Act provides that these associations may be formed "for the purpose of conducting any lawful business or occupation within the United States or elsewhere." The members of such associations are liable only to the extent of their subscription and for labor debts. The legislature has expressly recognized associations organized under this Act as corporations, as is shown by Section 36 of Act 232 of the Public Acts of 1903, the general corporation law, which excepts from its operation "the corporations provided for in the following statutes: Chapters 160 to 164 both inclusive ***" Chapter 160 being Act 191 of the Public Acts of 1877, the partnership asssociation limited law.

And the Supreme Court of this State has held that partnership associations limited, organized under Act 191, are to be governed by the general rules governing corporations.

Rouse Hazzard & Co. v. Detroit Cycle Co., 111 Mich, 251.
Staver etc. Mfg. Co. v. Blake, 111 Mich. 283.

Act 191 provides that partnership associations limited may be formed for the purpose of conducting any lawful business or occupation. As these partnership associations limited are governed by the rules relating to corporations it follows that under this general blanket clause a partnership association limited cannot be organized to transact a business around which the legislature has thrown special restrictions and for which it has provided special incorporation laws. It has been held that where a statute authorizes incorporation for any lawful purpose, and another statute provides for the incorporation of certain kinds of corporations-such as railway, telegraph or telephone companies-no company can be incorporated under the more general statute for the purposes which are covered by the other statute. The legislature is taken to have intended that, notwithstanding the general language of the one statute, no corporation should be formed for the purposes mentioned in the other without subjecting itself to the provisions of the other and more restrictive statute.

Machem's Modern Law of Corporations, Vol. 1, Sec. 63.

The legislature of this State has provided by the General Banking Laws for the incorporation of companies proposing to do a banking businesss, has fixed the liability of stockholders in such corporations in excess of the capital stock, and has placed special restrictions around such corporations. The passage of these General Banking Laws, providing for the organization of corporations under conditions quite inconsistent with those prescribed by the partnership association limited law, seems to be a strong legislative declaration that banking companies cannot be organized to acquire a corporate existence under acts such as the latter, and shows a clear legislative intent to separate banking corporations from other corporations, or from partnership associations limited which might lawfully be organized and promoted under such broad and general language as is contained in the partnership association limited law. The General Banking Laws have placed upon banking corporations special restrictions and limitations not applicable to other corporations or to partnership associations

limited, and have imposed upon stockholders of such corporation a special and increased liability. These special restrictions and limitations cannot be evaded by the simple device of incorporation under the partnership limited law or other general incorporation laws.

In my judgment the legislature has clearly expressed its intention that no corporation or partnership association limited shall acquire or exercise the right to do a banking business without subjecting itself to the statutory provisions of the General Banking Laws by incorporating under such laws, and it is, therefore, my opinion that an association or partnership limited cannot be organized under Chapter 160 of the Compiled Laws of 1897, for the purpose of owning and operating a bank or conducting a general banking business.

Your communication calls attention to a previous ruling of this department to the effect that "There is no legal objection to a partnership association limited, formed under and pursuant to Chapter 160 of the Compiled Laws of 1897, doing a private banking business, but that such business would have to be conducted pursuant to and in accordance with the requirements of Chapter 133 of the Compiled Laws of 1897." The opinion herein given is contrary to and reverses this ruling.

I have carefully examined Chapters 160 and 133 to determine their possible relation to each other. Chapter 160, the partnership association limited act, appears to attach no liability to members of such associations other than for labor debts and to the extent of their stock subscriptions, while Chapter 133, which is an act relating to the business of bankers, brokers, and exchange dealers, creates no restriction or limitations upon the common law liability of members of a partnership carrying on a business pursuant to its requirements.

It is true that under Chapter 133 individuals or partnership associations may engage in a private banking business, but it by no means follows that partnership associations organized under Chapter 160, the partnership association limited law, may therefore also engage in the same business. The liability incurred by members of a partnership acting under the former law is clearly inconsistent and irreconcilable with that imposed upon and incurred by members or stockholders of a partnership incorporated and acting under the latter law, and it would therefore be imposssible for a partnership association limited, organized under Chapter 160 to come under the provisions of Chapter 133 and to conduct a private banking business under that act. Yours very truly,

(Signed) FRANZ C. KUHN, Attorney General.

EXECUTOR NOT TO SUBSCRIBE FOR STOCK IN BANK; ARTICLES OF INCORPORATION.

June 6, 1912.

Hon. E. H. Doyle, Commissioner of the Banking Department, Lansing, Michigan:

Dear Sir-I am in receipt of your communication of May 21st, in which you ask whether or not the Department should accept articles of incorporation for a state bank which discloses that one of the proposed incorporators is an executor of an estate and subscribes for shares in his representative capacity as executor.

For reply thereto would say that section 1 of the General Banking Law authorizes the organization of commercial banks by any number of persons not less than five who may associate together for that purpose. The persons so associating are required to execute articles of incorporation which are approved by the Commissioner of the Banking Department. The act is silent upon the subject of who may become the original incorporators. By other provisions of the act each stockholder is liable for the benefit of the depositors to the amount of his stock at the par value thereof in addition to the stock, but it is expressly provided that persons holding stock as executors, administrators, guardians or trustees, and persons holding stock as collateral security, shall not be personally liable as stockholders but the assets and funds in their hands constituting the trust shall be liable to the same extent as the testator intestate ward or person interested in such trust funds would be if living and competent to aet.

This provision, while recognizing that stock in state banks may come into the hands of executors, administrators, guardians or trustees, does not in my judgment, authorize an executor or administrator to take part in the organization of a state bank and subscribe for stock therein as one of the original incorporators. It seems to me that in principle an executor or administrator would not have authority to bind the estate in this manner and I am of opinion consequently that under the provisions of the General Banking Law you should not accept articles of incorporation for a state bank which discloses that one of the proposed

incorporators is an executor of an estate and subscribes for shares in his representative capacity.

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BUILDING AND LOAN ASSOCIATIONS NOT REQUIRED TO REPORT ESCHEATED DEPOSITS.

July 31, 1912.

Mr. Albert E. Manning, Deputy Commissioner of the Banking Department, Capitol, Lansing: Dear Sir-I am in receipt of your letter of July 29th, with reference to the right of the Commissioner of Banking Department to demand of the Northern Michigan Building and Loan Association a report of deposits with the association which may have escheated to the State of Michigan in accordance with the provisions of Act 238 of the Public Acts of 1897. It appears from a communication of Mr. C. D. Hanchette, Secretary of the association, which accompanies your letter, that the Northern Michigan Building and Loan Association does not accept deposits and the secretary for that reason claims that the association is not required to make this report to the Commissioner of Banking.

For reply to your communication I would say that section 6 of the act referred to, same being section 1218 of the Compiled Laws of 1897, provides in part that:

"On the thirtieth day of June, eighteen hundred ninety-seven and thereafter on the thirtieth day of June in every third year as hereinafter set forth, it shall be the duty of each person, co-partnership, company or corporation who shall be engaged in the trust business or the business of banking within this State, and as a part of such business, receive in any manner whatever moneys or securities of persons upon deposit, to make a report as hereinafter provided of all such deposits which have escheated to the State of Michigan and also report all such deposits where the person making the same has not had any dealings with such person, copartnership, company or corporation in relation to such deposits within three years before making such report, and the person, copartnership, company or corporation receiving such deposits shall have good reason to believe that the depositor is dead and that such deposit should escheat to the State of Michigan."

The law provides that the report shall be made to the Commissioner of the Banking Department and shall contain a statement in detail of the matters and things set forth in the statute. You will note from this provision and other provisions of the law relating to escheated estates, that the report of deposits is required only from persons, copartnerships, companies and corporations engaged in the trust business or the business of banking and as a part of such business receiving moneys or securities upon deposit. In view of the foregoing I am of the opinion that building and loan associations do not come within these provisions and cannot be required to make this report to the Commissioner of the Banking Department. Yours respectfully, (Signed) FRANZ C. KUHN, Attorney General.

NATIONAL BANKS NOT REQUIRED TO REPORT ESCHEATED DEPOSITS.

October 9th, 1912.

Hon. Edward H. Doyle, Commissioner State Banking Department, Capitol, Lansing, Michigan:

Dear Sir-I have your communication of September 10th in which you ask that I indicate to your department my opinion upon the question of whether or not national banks can be required to make report of escheated deposits as required by Section 6 of Act 238, Public Acts of 1897, (Section 1218, Compiled Laws of 1897.)

For reply thereto would say that this section makes it the duty of every person or corporation who shall be engaged in the trust business or the business of banking within this State and as part of such business receiving moneys or securities of persons upon deposit. to make a report of all such deposits which have escheated to the State of Michigan, and also to report all such deposits where the person making the same has not had any dealings with such person or corporation with relation to such deposits within three years before making such report, and the bank receiving such deposit shall have good reason to believe that the de

positor is dead and that such deposit would escheat to the State of Michigan. The report is required to be made to the Commissioner of Banking, and to contain a truthful statement in detail of the matters referred to in the act. The succeeding section of the act provides that if any person or corporation shall after being required so to do by the Commissioner of Banking, fail to make, sign and swear to and file such report in the manner and time fixed by the act, he or it shall become liable to and shall forfeit to the People of the State of Michigan the penal sum of three hundred dollars, and an additional penal sum of ten dollars for each and every day while said report shall remain unfiled, the penalties to be recovered in an action of debt at the suit of the Attorney General.

Section 9 of the act makes it the duty of the Attorney General to see that such reports are properly made at the proper time and manner, and if they are not so filed and made, to take the proper steps to secure the making and filing of the same, and provides that if he has good reason to believe that a proper disclosure has not been made by any person or corporation in any of the reports provided for by the act and that there are moneys and securities in their custody which have escheated to the State, to apply to the Circuit Court of the proper county by special motion for leave to file a bill in chancery, and upon leave granted to file such a bill in behalf of the people against such person or corporation, to compel a full, complete and truthful statement regarding the matters required to be contained in the reports.

It is claimed that reports of this character cannot be required of national banks, by reason of the provisions of Section 5241, Revised Statutes of the United States, which forms a part of the national banking act, and is as follows:

"No association shall be subject to any visitorial power other than are authorized by this title, or are vested in the courts of justice."

The scope of this provision of the act of Congress is discussed by the Supreme Court of the United States in the case of Guthrie v. Harkness, 199 U. S. 148, where Mr. Justice Day, after referring to this provision of the national banking act, and the definition of the term "visitorial powers" said:

"The right of visitation being a public right existing in the State for the purpose of examining into the conduct of the corporation with a view to keeping it within its legal powers, Congress had in mind in passing this section that in other sections of the law it had made full and complete provision for investigation by the Comptroller of the Currency and examiners appointed by him, and authorizing the appointment of a receiver, to take possession of the business with a view of winding up the affairs of the bank. It was the intention that this statute should contain a full code of provisions upon the subject, and that no State law or enactment should undertake to exercise the right of visitation over a national corporation. Except in so far as such corporation was liable to control in the courts of justice, this act was to be the full measure of visitorial power."

In view of this provision of the national banking act as thus construed by the Supreme Court of the United States, I am inclined to the opinion that the Michigan act relating to reports by banks of escheated deposits would if construed to apply to national banks be held to be in violation of the national banking act. I conclude, therefore, that the Michigan escheated estate, so far as it relates to reports of escheated deposits by banks, should be construed as not applying to national banks.

Respectfully yours, (Signed) ROGER I. WYKES, Attorney General,

TRUST COMPANIES MAY RECEIVE DEPOSITS AND ISSUE CERTIFICATES THEREFOR.

Hon. Edward H. Doyle, Commissioner of Banking, Capitol, Lansing:

December 31, 1912.

Dear Sir-In your communication to this department of November 26th, 1912, you present for consideration the following questions:

"Referring to Act No. 108 of the Public Acts of 1889, as amended, known as the Trust. Deposit and Security Company Law, we would appreciate your opinion as to whether or not a trust company has the right to issue certificates of deposit; and whether or not such certificates of deposit must be restricted as evidencing the receipt of money in trust.

Also advise whether or not a trust company can issue its certificates of deposit for money received in any other manner than in trust."

The specific inquiry is, whether a trust company in Michigan can receive moneys otherwise than in trust and issue certificates of deposit as evidence thereof.

All authority which a trust company possesses must be conferred upon it by law. As in the case of any other corporation, the act of incorporation which constitutes the charter is the measure of its powers. Unless that charter (with other statutes of the State, which may properly be termed a part of the charter) confers the authority, the trust company does not possess it.

The law for the incorporation of trust companies in Michigan is Act No. 108 of the Public Acts of 1889, being Sections 6156 to 6189 (C. L. 1897) inclusive. Under the terms of this act, a trust company possesses the specific authority;

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(b) To act as and to conduct a depository for the safe keeping of certain personal property and the renting of safety deposit receptacles, and

(c) To act as surety and guarantor under certain circumstances.

In addition to these specific authorities, Section 9 of said act confers upon the trust companies organized thereunder the following authority:

"Any corporation organized under this act shall have power in and by its corporate name to take, receive, and hold, and repay, reconvey and dispose of any effects and property, both real and personal, which may be granted, committed, transferred or conveyed to it with its consent, upon any terms."

The language last above quoted, is sufficient to confer upon trust companies the authority to receive money on deposit and as incident to that authority there would exist the right to issue notes, certificates or other evidences of the indebtedness or relation thereby created. This general language, however, is limited by the exception contained later in the same section (Section 9) which is:

"But nothing herein contained shall be construed as giving the right to issue bills to circulate as money, or buy or sell bank exchange, or to do a general banking business."

It may be taken for granted that the issuance of certificates of deposit is not the issuing of bills to circulate as money or buying or selling of exchange; the question therefore reselves itself into whether the issuing of such certificates is doing a general banking business as to be within the limitation upon the powers of trust companies and thus beyond their authority.

The general structure of the act in question indicates that the authority of trust companies in receiving effects and property is not to be limited to the receipt of those which it receives and holds as trustee. It is unnecessary to point out all of the provisions of the act which lead to this conclusion: It is sufficient to refer to the general provision above quoted (Section 9) which was unnecessary if the authority of the corporation was to be limited to the taking and receiving of effects and property (which would include money) to be held in trust, as full authority is, by other provisions of the act, conferred upon the company to act as trustee. This conclusion is further borne out by the state of the law and the changes made therein the passages of said Act No. 108 of the Public Acts of 1889. Previous to the passage of that act, the act for the incorporation of trust companies being section 3237 and 3251 (Howell's Statutes) inclusive, conferred quite full authority upon trust companies to act as trustees for any lawful purpose and the extension of their authority, by the use of language designed to include other than powers of trusteeship, indicates a purpose to so enlarge the powers permitted to be exercised by trust companies as to go beyond the usual functions of a trustee and to permit them to receive effects and property upon other terms than as trustee, and in fact, as the statute as amended provides, "upon any terms."

We come then to the real question presented for solution, namely, whether in the receiving of deposits and issuing certificates therefor, a trust company would be doing "a general banking business."

Unquestionably, the receiving of deposits and the issuing of certificates therefor, is one of the many functions ordinarily and usually performed by a bank, but it does not appear that such function has been exercised alone by banks, or that it is such as to be inseparable from the banking business, or that its exercise would fix the dividing line between being a bank or not, or between exercising or not exercising "general banking business."

In the inception and growth of the banking business there have been three types of banksbanks of issue, banks of deposits and banks of discount. The modern banking institution, however, usually combines two or more of these authorities and has many ramifications in

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